Exchange Control

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EXCHANGE CONTROLS
Definition
* A complete or partial regulation by the government covering payments from one monetary area into all others and/or the disposition of foreign exchange receipts and incomes of residents of the monetary area concerned. * As a form of government control it subjects all international transactions of the country to licensing, that is, both the visible and invisible terms, which necessarily includes such items as commodity imports, interest, and dividend payments, travel abroad, freight expenditures, capital movement and others. * Receipts of income from abroad are required to be surrendered to the government for their conversion in their equivalent in terms of local currency. Nature and Scope

* It covers not only merchandise transactions as already stated above but likewise the invisible items of the balance of payments. * “WE will not permit you to spend money for travels, for imports of luxury items, etc. They are not needed by our economy.” History

* Started in 1930s in Germany and in the rest of Central and Eastern Europe, Japan and Latin America. * It rapidly spread all over Western Europe and British Commonwealth during World War II. Since then it had become a major instrument of national economic policy. Purpose

* Purposed to conserve the foreign exchange resources of the country as well as to control exchange rates through limitation of the freedom or monopolization, of foreign exchange transactions. * Restrictions are imposed by countries, whenever, owing to an adverse balance of payments, the demand for foreign exchange exceeds supply and the central bank is unwilling or unable to ship gold abroad. * Regulates the foreign exchange market to avoid the decline of the exchange value of the currency leading to a flight of capital to a foreign country where currency appears to be strong. * Indirectly bringing gains or profits from the difference between selling rate and buying rate....
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